by Calculated Risk on 7/28/2023 10:46:00 AM

Today, in the Calculated Risk Real Estate Newsletter: Inflation Adjusted House Prices 4.4% Below Peak; Price-to-rent index is 7.9% below recent peak

Excerpt:

It has been over 17 years since the bubble peak. In the May Case-Shiller house price index released Tuesday, the seasonally adjusted National Index (SA), was reported as being 64% above the bubble peak in 2006. However, in real terms, the National index (SA) is about 8% above the bubble peak (and historically there has been an upward slope to real house prices).  The composite 20, in real terms, is 2% below the bubble peak.

People usually graph nominal house prices, but it is also important to look at prices in real terms.  As an example, if a house price was $200,000 in January 2000, the price would be $358,000 today adjusted for inflation (79% increase).  That is why the second graph below is important - this shows "real" prices.

The third graph shows the price-to-rent ratio, and the fourth graph is the affordability index. The last graph shows the 5-year real return based on the Case-Shiller National Index.

There is much more in the article. You can subscribe at https://calculatedrisk.substack.com/

by Calculated Risk on 7/28/2023 09:17:00 AM

Here is a graph of the year-over-year change in shelter from the CPI report and housing from the PCE report this morning, both through June 2023.

CPI Shelter was up 7.8% year-over-year in June, down from 8.0% in May, and down from the cycle peak of 8.2% in March 2023.

Housing (PCE) was up 8.0% YoY in June, down from 8.3% in May, and down from the cycle peak of 8.4% in April 2023.

Since asking rents are mostly unchanged year-over-year, these measures will slow sharply in coming months.

by Calculated Risk on 7/28/2023 08:36:00 AM

The BEA released the Personal Income and Outlays report for June:

Personal income increased $69.5 billion (0.3 percent at a monthly rate) in June, according to estimates released today by the Bureau of Economic Analysis. Disposable personal income (DPI), personal income less personal current taxes, increased $67.5 billion (0.3 percent) and personal consumption expenditures (PCE) increased $100.4 billion (0.5 percent).

The PCE price index increased 0.2 percent. Excluding food and energy, the PCE price index also increased 0.2 percent. Real DPI increased 0.2 percent in June and real PCE increased 0.4 percent; goods increased 0.9 percent and services increased 0.1 percent.
emphasis added

The June PCE price index increased 3.0 percent year-over-year (YoY), down from 3.8 percent YoY in May, and down from the recent peak of 7.0 percent in June 2022.

The PCE price index, excluding food and energy, increased 4.1 percent YoY, down from 4.6 percent in May, and down from the recent peak of 5.4 percent in February 2022.

The following graph shows real Personal Consumption Expenditures (PCE) through June 2023 (2012 dollars). Note that the y-axis doesn't start at zero to better show the change.

Click on graph for larger image.

The dashed red lines are the quarterly levels for real PCE.

Personal income was slightly below expectations, and PCE was slightly above expectations.

Inflation was below expectations.

by Calculated Risk on 7/27/2023 08:47:00 PM

Note: Mortgage rates are from MortgageNewsDaily.com and are for top tier scenarios.

Friday:
• At 8:30 AM ET, Personal Income and Outlays, June 2022. The consensus is for a 0.4% increase in personal income, and for a 0.4% increase in personal spending. And for the Core PCE price index to increase 0.2%.  PCE prices are expected to be up 3.1% YoY, and core PCE prices up 4.2% YoY.

• At 10:00 AM, University of Michigan's Consumer sentiment index (Final for July). The consensus is for a reading of 72.6.

by Calculated Risk on 7/27/2023 03:46:00 PM

Realtor.com has monthly and weekly data on the existing home market. Here is their weekly report from Danielle Hale: Weekly Housing Trends View — Data Week Ending July 22, 2023

• Active inventory declined, with for-sale homes lagging behind year ago levels by 8%. This week marks a 5th consecutive annual decline in the number of homes actively available for sale.

• New listings–a measure of sellers putting homes up for sale–were down again this week, by 18% from one year ago. The number of newly listed homes has been lower than the same time the previous year for the past 55 weeks. The size of the gap has been large and fairly consistent over the past year, but as we pass the period in 2022 when new listings slowed sharply, we may see declines wane.

Here is a graph of the year-over-year change in inventory according to realtor.com. 

Inventory was down 8.1% year-over-year - this was the fifth consecutive week with a YoY decrease following 58 consecutive weeks with a YoY increase in inventory.  

Inventory is still up from the record lows in the 2nd half of 2021 and early 2022, and it is unlikely we will see new record lows by this measure this year.

by Calculated Risk on 7/27/2023 11:56:00 AM

Today, in the Calculated Risk Real Estate Newsletter: Fannie and Freddie: Single-Family Mortgage Delinquency Rate Declined, Multi-Family Increased in June

Brief excerpt:

I’ve argued that there would not be a huge wave of single-family foreclosures this cycle since lending standards have been solid and most homeowners have substantial equity. That means we will not see cascading price declines like following the housing bubble. This is a high confidence prediction and is supported by the following data.

However, there is some concern about some multi-family properties.
...
Freddie Mac reports that multi-family delinquencies increased to 0.21% in June, up from 0.07% in June 2022.

This graph shows the Freddie multi-family serious delinquency rate since 2012. Rates were still high in 2012 following the housing bust and financial crisis.

The multi-family rate increased following the pandemic and has increased recently as rent growth has slowed, vacancy rates have increased, lending has tightened, and interest rates have increased sharply. This will be something to watch as rents soften.

You can subscribe at https://calculatedrisk.substack.com/.

by Calculated Risk on 7/27/2023 10:03:00 AM

From the NAR: Pending Home Sales Rose 0.3% in June, First Increase in Three Months

Pending home sales registered a modest increase of 0.3% in June from the previous month – the first increase since February – according to the National Association of REALTORS®. The South and West posted monthly losses, while sales in the Northeast and Midwest grew. All four U.S. regions saw year-over-year declines in transactions.

"The recovery has not taken place, but the housing recession is over," said NAR Chief Economist Lawrence Yun, "The presence of multiple offers implies that housing demand is not being satisfied due to lack of supply. Homebuilders are ramping up production and hiring workers."

The Pending Home Sales Index (PHSI)* – a forward-looking indicator of home sales based on contract signings – rose 0.3% to 76.8 in May. Year over year, pending transactions fell by 15.6%. An index of 100 is equal to the level of contract activity in 2001.
...
The Northeast PHSI ascended 0.6% from last month to 67.1, a decrease of 16.7% from June 2022. The Midwest index jumped 4.3% to 77.6 in June, down 17.1% from one year ago.

The South PHSI receded 1.4% to 93.3 in June, lessening 14.3% from the prior year. The West index fell 1.0% in June to 57.7, dipping 15.5% from May 2022.
emphasis added

This is close to expectations of a 0.1% increase for this index. Note: Contract signings usually lead sales by about 45 to 60 days, so this would usually be for closed sales in July and August.

by Calculated Risk on 7/27/2023 08:37:00 AM

The DOL reported:

In the week ending July 22, the advance figure for seasonally adjusted initial claims was 221,000, a decrease of 7,000 from the previous week's unrevised level of 228,000. The 4-week moving average was 233,750, a decrease of 3,750 from the previous week's unrevised average of 237,500.
emphasis added

The following graph shows the 4-week moving average of weekly claims since 1971.

Click on graph for larger image.

The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims decreased to 233,750.

The previous week was unrevised.

Weekly claims were below the consensus forecast.

by Calculated Risk on 7/27/2023 08:34:00 AM

From the BEA: Gross Domestic Product, Second Quarter 2023 (Advance Estimate)

Real gross domestic product (GDP) increased at an annual rate of 2.4 percent in the second quarter of 2023, according to the "advance" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 2.0 percent.

The increase in real GDP reflected increases in consumer spending, nonresidential fixed investment, state and local government spending, private inventory investment, and federal government spending that were partly offset by decreases in exports and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, decreased.

The increase in consumer spending reflected increases in both services and goods. Within services, the leading contributors to the increase were housing and utilities, health care, financial services and insurance, and transportation services. Within goods, the increase was led by recreational goods and vehicles as well as gasoline and other energy goods. The increase in nonresidential fixed investment reflected increases in equipment, structures, and intellectual property products. The increase in state and local spending reflected increases in compensation of state and local government employees and gross investment in structures. The increase in private inventory investment reflected increases in both farm and nonfarm inventories.

Compared to the first quarter, the acceleration in GDP in the second quarter primarily reflected an upturn in private inventory investment and an acceleration in nonresidential fixed investment. These movements were partly offset by a downturn in exports, and decelerations in consumer spending, federal government spending, and state and local government spending. Imports turned down.
emphasis added

PCE increased at a 1.6% annual rate, and residential investment decreased at a 4.2% rate. The advance Q2 GDP report, with 2.4% annualized increase, was above expectations.

I'll have more later ...

by Calculated Risk on 7/26/2023 08:44:00 PM

Note: Mortgage rates are from MortgageNewsDaily.com and are for top tier scenarios.

Thursday:
• At 8:30 AM ET, The initial weekly unemployment claims report will be released.  The consensus is for 240 thousand initial claims, up from 228 thousand last week.

• Also at 8:30 AM, Gross Domestic Product, 2nd quarter (advance estimate), and annual update. The consensus is that real GDP increased 1.8% annualized in Q2, down from 2.0% in Q1.

• Also at 8:30 AM, Durable Goods Orders for June from the Census Bureau. The consensus is for a 1.0% increase in durable goods orders.

• At 10:00 AM, Pending Home Sales Index for June. The consensus is for a 0.1% increase in the index.

• At 11:00 AM, Kansas City Fed Survey of Manufacturing Activity for July.